Minnesota Hospital
Public Interest Review:
Fairview Health Services
Proposal for a New Inpatient
Facility in Maple Grove,
Minnesota
Minnesota Department of Health
March 2005
Office of Health Policy, Statistics and Informatics
Health Economics Program
PO Box 64882
St. Paul, Minnesota 55164-0882
(651) 282-6367
www.health.state.mn.us
Minnesota Hospital Public
Interest Review:
Fairview Health Services Proposal for a
New Inpatient Facility in Maple Grove,
Minnesota
Minnesota Department of
Health
March 2005
Office of Health Policy, Statistics and Informatics
Health Economics Program
PO Box 64882
St. Paul, Minnesota 55164-0882
(651) 282-6367
www.health.state.mn.us
As required by Minnesota Statute 3.197: This report cost approximately $75,000 to prepare including staff
time, printing and mailing expenses
iii
Table of Contents
1. Background
1
2. Hospital Public Interest Review Process
2
3. Public Input
4
4. Trends in the Use of Inpatient Hospital Services and Projected Impact of Future
Demographic Change
6
5. Review of Fairview’s Proposal for an Exception to the Hospital Moratorium
17
6. Discussion and Recommendations
32
Appendix 1: Copies of Comments on the Proposal
37
Appendix 2: Methodology
53
Appendix 3: American College of Suregeons Classification of Trauma Centers.
57
Report to the Minnesota Legislature
iv
Minnesota Hospital Public Interest Review - Fairview
1
1. Background
Since 1984, Minnesota law has prohibited the construction of new hospitals or expansion of bed
capacity of existing hospitals without specific authorization from the Legislature (Minnesota
Statutes 144.551). As originally enacted, the law included a few specific exceptions to the
moratorium on new hospital capacity; other exceptions have been added over time, and there are
currently 18 exceptions to the moratorium that are listed in the statute. Many of these exceptions
apply to specific facilities, but some define an exception that applies more broadly (for example, an
exception that allows for the relocation of a hospital within five miles of its original site under some
circumstances).
The moratorium on licensure of new hospital beds replaced a Certificate of Need (CON) program
that provided for case-by-case review and approval of proposals by hospitals and other types of
health care providers to undertake large projects such as construction and remodeling or purchases
of expensive medical equipment. The CON program was in effect from 1971 until it was replaced
by the hospital moratorium in 1984. The CON program was criticized for failing to adequately
control growth, but at the same time there was substantial concern among policymakers about
allowing the CON program to expire without placing some other type of control on investment in
new capacity.
At the time the hospital moratorium was enacted, policymakers were concerned about excess
capacity in the state’s hospital system, its impact on the financial health of the hospital industry,
and its possible impact on overall health care costs. According to a 1986 Minnesota Senate
Research Report on the hospital moratorium, “Declining occupancy has resulted in thousands of
empty hospital beds across the state, in financial difficulty for some hospitals, and in efforts by
hospitals to expand into other types of care. In spite of the excess hospital capacity in the state,
hospitals continued to build and expand until a moratorium was imposed….”1 The moratorium
was seen as a more effective means of limiting the expansion of hospital capacity than the
Certificate of Need program it replaced. One drawback of the moratorium, however, has been that
there is no systematic way of evaluating proposals for exceptions to the moratorium in terms of the
need for new capacity or the potential impact of a proposal on existing hospitals.
“Hospital and Nursing Home System Growth: Moratoria, Certificate of Need, and Other Alternatives,” Minnesota
Senate Research Report, by Dave Giel and Michael Scandrett, January 1986.
1
Report to the Minnesota Legislature
2
2. Hospital Public Interest Review Process
In 2004, the Legislature established a new process for reviewing proposals for exceptions to the
hospital moratorium (Minnesota Statutes 144.552). This “public interest review” process requires
that hospitals planning to seek an exception to the moratorium law submit a plan to the Minnesota
Department of Health (MDH). Under the law, MDH is required to review each plan and issue a
finding on whether the plan is in the public interest. Specific factors that MDH is required to
consider in the review include:
Whether the new hospital or hospital beds are needed to provide timely access to care or
access to new or improved services;
The financial impact of the new hospital or hospital beds on existing acute-care hospitals
that have emergency departments in the region;
How the new hospital or hospital beds will affect the ability of existing hospitals in the
region to maintain existing staff;
The extent to which the new hospital or hospital beds will provide services to nonpaying or
low-income patients relative to the level of services provided to these groups by existing
hospitals in the region; and
The views of affected parties.
Finally, the law requires that the public interest review be completed within 90 days, but allows for
a review time of up to six months in extenuating circumstances. Authority to approve any
exception to the hospital moratorium continues to rest with the Legislature.
In November 2004, MDH received three separate filings for public interest review of a proposal to
build a new hospital in Maple Grove, Minnesota. North Memorial Health Care and Fairview
Health Services each submitted proposals, and a joint proposal from Allina Hospitals and Clinics,
Park Nicollet Health Services, and Children’s Hospitals and Clinics (collectively, the “Maple Grove
Tri-Care Partnership”) was also submitted. The law that established the public interest review
process does not specifically contemplate situations in which more than one proposal for an
exception may be submitted for the same geographic area. With regard to the three applications for
public interest review that MDH has received for the Maple Grove area, we have reviewed each
plan separately according to the criteria established in the law. It is important to note that each of
the three proposed projects also involves the construction of large new outpatient facilities that will
provide a broad range of services such as primary and specialty care, ambulatory surgery, and
diagnostic imaging, with construction beginning as early as 2005; however, Minnesota law does not
restrict the ability to construct outpatient facilities in the same way as it does for inpatient facilities,
and those portions of the proposed projects are therefore outside of the scope of MDH’s public
interest review.
Minnesota Hospital Public Interest Review - Fairview
3
Our review of each proposal included several different components. Some of these components,
such as soliciting public input, reviewing historical and projected data on population demographics
and hospital use, and reviewing previously published research on relevant topics, were overlapping
among the three proposals. Other aspects of our review, such as estimating the potential impact of
the proposed facility on other hospitals in the region and evaluating each proposal in light of the
specific criteria listed in the law, were conducted separately for each proposal.
The remainder of this report is organized as follows:
Section 3 provides a summary of the comments from the public and other affected parties
that we received related to the need for a hospital in Maple Grove;
Section 4 presents information on trends in the use of hospital services and how the use of
hospital services is projected to change as a result of future demographic changes, from a
statewide and regional perspective and also for the local hospital market serving residents of
the Maple Grove area;
Section 5 evaluates Fairview’s plan to build a hospital in Maple Grove in light of the criteria
for review that are specified in Minnesota Statutes 144.552;
Section 6 concludes the report with a summary of the analysis and findings, along with
other factors that policymakers may wish to consider in evaluating this proposal for an
exception to the hospital moratorium.
Report to the Minnesota Legislature
4
3. Public Input
We used three strategies to collect input on the views of affected parties. First, we sent a letter to all
hospital administrators in Minnesota notifying them of the plans that had been filed and soliciting
their input if they wished to provide any. Second, we published a notice in the December 6, 2004
State Register as a general notice to interested parties that we had received three plans and
providing an opportunity to comment on the proposals. Third, we held a public meeting in Maple
Grove on January 11, 2005 to solicit input from the community on the need for a hospital in
Maple Grove and the impact that a hospital in Maple Grove might have on other hospitals in the
region. In addition, we posted an electronic copy of each of the filings that we received on MDH’s
website, in order to provide convenient access to the proposals to anyone who might wish to
comment. Copies of written comments that we received about this proposal for an exception to
the hospital moratorium are included in Appendix 1.
The public meeting that MDH held in Maple Grove on January 11 was intended to provide a
forum for public input to MDH on the general need for a hospital in Maple Grove. An estimated
300 people attended the meeting, and 42 citizens provided comments. Many of the comments
shared similar themes, which are summarized below:
Concerns about health and safety:
Citizens are concerned about the distance to the nearest hospital (11 miles to North
Memorial in Robbinsdale) and by the amount of time that it takes to travel there
due to frequent traffic congestion.
Citizens and health care professionals alike believe that the Maple Grove area needs
to have more timely access to emergency and trauma services. According to one
person, the closest emergency care is “20 to 30 minutes away on a good day” and
there is a need for more timely access.
Some health care professionals expressed specific public safety concerns about the
lack of access to emergency care. They reported that the distance to the nearest
emergency room deters some people from seeking emergency care that they really
need (or causes them to delay seeking care), and they reported that urgent care
centers currently located in Maple Grove are increasingly being used by people who
are too sick to be treated there because of the lack of convenient access to a hospital
emergency room.
Shortages of specific services:
Several people commented on the need for additional mental health and chemical
dependency services, due to a shortage of inpatient beds available to treat these
conditions.
Minnesota Hospital Public Interest Review - Fairview
5
Convenient access to services:
Collaboration between health care providers and the community:
Community residents expressed a desire for more convenient access to health care
services, particularly obstetric care, pediatric care (including specialty pediatric
services), and cancer treatment.
Although many of the comments that focused on convenient access to services
related to services that are likely to be provided in an outpatient setting, several
people expressed a desire that any hospital that is built in Maple Grove should be a
“full service” hospital providing a complete range of care without the need for
patients to be transferred to other hospitals to receive more complex services.
Several people provided comments that emphasized the need for any organization
that builds a hospital in Maple Grove to work collaboratively with the community
(schools, churches, etc.) to identify and address community needs.
Impact on other hospitals in the region:
Several community residents, some of whom are employed by North Memorial,
expressed concerns about a potential adverse impact on North Memorial if one of
the other two proposals were to be approved, about North Memorial’s ability to
survive as an independent institution, and about potential further consolidation of
the hospital market into a market controlled by one or two large hospital systems.
Report to the Minnesota Legislature
6
4. Trends in the Use of Inpatient Hospital
Services and Projected Impact of Future
Demographic Change
State and Regional Trends
As noted above, one of the reasons for the original enactment of the hospital moratorium was that
there was perceived to be a significant amount of excess capacity in Minnesota’s hospital system.
Since the moratorium was enacted, occupancy rates for Minnesota’s hospital system as a whole have
continued to be relatively low in comparison to licensed capacity. For example, in 2003 the system
as a whole had an occupancy rate of about 42 percent of licensed beds; however, there is substantial
variation in occupancy rates among different regions of the state – in 2003, occupancy rates ranged
from a low of 28 percent in the South Central region to a high of 48 percent in the Twin Cities
Metropolitan region (see map for region definitions).
Regional Definitions
Northwest
Northeast
West
Central
Central
Metropolitan
Southwest
South
Central
0
25 50
100
Southeast
150
200
Miles
±
In some ways, however, analyzing occupancy rates based on licensed beds can be misleading because
many hospitals (particularly in the Twin Cities Metropolitan and Southeast regions) have large
numbers of beds that are licensed but are unused. In some cases, these licensed beds may not even
be able to be used within a facility’s current physical capacity (i.e., a facility would have to
undertake a major construction project in order to make use of these licensed beds). As a result,
counting all of these licensed hospital beds when calculating occupancy rates is likely to overstate
Minnesota Hospital Public Interest Review - Fairview
7
the true capacity of Minnesota’s hospital system. When occupancy rates are calculated based on
“available beds”,2 the statewide hospital occupancy rate was 59 percent in 2003, ranging from a low
of 28 percent in the Southwest region to a high of 71 percent in the Twin Cities Metropolitan
region.
Because of advances in technology (e.g., the ability to do many procedures on an outpatient basis
that formerly would have required a hospital stay), changes in standards of care, changes in health
insurance payment systems, and other factors, use of inpatient hospital services in Minnesota (both
admissions and total number of inpatient days) declined through the mid-1990s despite population
growth. As shown in Table 1, even though Minnesota’s population grew by about 20 percent from
1987 to 2003, the number of hospital admissions grew more slowly over the same period (14
percent) and the number of inpatient hospital days actually declined by 16 percent.
Table 1
Historical Trends in Use of Inpatient Hospital Services
Percent change in:
Inpatient
Admissions
1987 to 1994
1994 to 1998
1998 to 2003
1987 to 2003
-6.5%
7.9%
13.4%
14.4%
Inpatient
Days
-20.2%
-1.6%
7.1%
-15.9%
Minnesota
Population
8.9%
4.4%
5.2%
19.6%
Source: MDH, Hospital Cost Containment Information System, 1987 to 2003. 1987 was the first
year of data collection.
There are several factors that are likely to influence future use of hospital services. Population
growth will continue to play an important role, and aging will begin to be a more important factor
as the baby boom generation reaches the age at which use of hospital services begins to increase
sharply. In addition, technological advance will continue to be a very important determinant of
future use of hospital services, with some new technologies likely increasing the use of inpatient
services and others decreasing the use of services. Changes in the prevalence of disease (for
example, due to rising rates of overweight and obesity) are also likely to play a role.
According to MDH estimates, population growth and the changing age distribution of the
population are expected to result in an overall 36 percent increase in inpatient hospital days
statewide between 2000 and 2020. As shown in Figure 1, this estimated increase varies by region:
growth in the Central and Metropolitan regions is expected to be strongest, with growth in
inpatient days of 53 percent and 40 percent, respectively. As a result, if the number of available
beds were unchanged, occupancy rates would rise as well. The highest projected occupancy rates in
2 The definition of “available beds” is the number of acute care beds that are immediately available for use or could be
brought on line within a short period of time.
Report to the Minnesota Legislature
8
2020 are for the Metropolitan region (94 percent), Southeast region (85 percent) and Central
region (76 percent), compared to a statewide average of 77 percent (see Figure 2). If occupancy
rate calculations are performed using the number of hospital beds licensed in 2003 instead of
available beds, the estimated future occupancy rates are much lower – 63 percent in the
Metropolitan region, 53 percent in the Southeast region, 64 percent in the Central region, and 55
percent statewide.
Figure 1
Projected Growth in Inpatient Days by Region, 2000 to 2020
28%
26%
26%
53%
Statewide Growth
Rate= 37%
40%
9%
34%
19%
0
25 50
Minnesota Hospital Public Interest Review - Fairview
100
150
200
Miles
±
9
Figure 2
Projected Occupancy Rates as % of 2003 Available Beds by Region, 2020
41%
58%
35%
76%
94%
Statewide Occupancy
Rate= 77%
29%
85%
46%
0
25
50
100
150
200
Miles
±
In other words, there is clearly no shortage of licensed hospital beds in the state as a whole, nor is a
shortage likely to materialize in the next fifteen years. However, the fact that the aggregate number
of licensed beds in the state appears to be sufficient over this time period does not necessarily mean
that there is no need for new physical hospital capacity, particularly in certain areas of the state
experiencing rapid growth. There are several reasons why this may be the case:
First, as noted earlier, occupancy rates vary widely across the state. Based on the number of
currently available beds, occupancy rates projected for 2020 in the Metropolitan region (94
percent) and Southeast region (85 percent) are very high. The degree to which hospitals in
these regions may be able to expand the number of available beds to meet future demand
without undertaking major construction projects to increase physical capacity is uncertain.
(This issue is discussed more specifically with regard to the Maple Grove area below.)
In addition, average occupancy rates measured over a full-year period do not capture
variations in occupancy rates that occur during the year. This consideration is important
because even though a hospital’s annual occupancy rate may not seem high enough to create
concerns about whether capacity is sufficient, there are likely a number of times during the
year when the hospital’s occupancy rate is substantially higher than the average experienced
over the entire year. As a result, using occupancy rates that measure capacity use over a fullyear period may understate the degree to which the hospital system may be operating at or
near capacity constraints at certain times.
Report to the Minnesota Legislature
10
It should also be noted that hospitals’ ability to make full use of their licensed beds within existing
facilities is limited by the relatively recent shift in the hospital market (both in Minnesota and
nationally) toward private instead of semi-private hospital rooms. Consumer preferences have
played an important role in many hospitals’ business decisions to convert semi-private to private
rooms, as well as concerns about patient safety and compliance with patient privacy laws.3
While Minnesota’s hospitals likely have the ability to expand the number of available beds to some
degree at existing facilities to meet projected future demand, it may also be the case that future
demand in high-growth areas cannot be met without some major construction projects, either the
construction of new hospitals or the expansion of existing facilities. If it is likely that some type of
major construction project will be necessary to meet future needs, then the question before
legislators as they consider granting an exception to the hospital moratorium becomes more a
question not of whether new hospital capacity is needed, but where the new capacity should be
located.
Trends in the Maple Grove Area
The Maple Grove area is experiencing rapid population growth. Although each of the proposals for
an exception to the hospital moratorium in Maple Grove defines the area somewhat differently,
population growth is projected to be much faster than the statewide average regardless of the
specific geographic definition chosen. The Maple Grove area is expected to grow approximately 3
to 4 times faster than the projected statewide growth rates of 4.7 percent from 2003 to 2009 and
5.0 percent from 2009 to 2015.
The plans submitted to MDH by the hospitals seeking an exception to the moratorium identify
several hospitals that currently serve significant numbers of residents of the Maple Grove area.
Figure 3 shows the locations of each of the eleven hospitals that currently serve most residents of
the Maple Grove area. Key utilization and financial indicators for these hospitals in 2003 (the most
recent year of data that is available) are listed in Table 2. Recent trends in admissions, the total
number of inpatient days, and occupancy rates are described in Table 3. For these eleven hospitals
as a group, the occupancy rate as a percentage of available beds increased from 69 percent in 1999
to 74 percent in 2003.
Michael Romano, “Going Solo: Private-Rooms-Only Provision for New Hospital Construction Stirs Controversy,”
Modern Healthcare, November 29, 2004.
3
Minnesota Hospital Public Interest Review - Fairview
11
Figure 3
Hospitals Serving the Maple Grove Area
North Memorial
94
35W
Minneapolis
394
Fairview Northland
St. Cloud
Abbott
Northweste
Children's -Fairview-Unive
Mpls
Methodist
35W
Monticello Big Lake
35
Buffalo
Mercy
35W
94
Maple GroveUnity
35E
494
North Memorial
Minneapolis35E
694
Abbott
Northwester
St. Paul
Methodist
35E
394
Allina Hospitals
35W
Fairview Hospitals
Other Hospitals
0
3.5
7
14
21
–
Miles
28
Report to the Minnesota Legislature
Minnesota Hospital Public Interest Review - Fairview
20 miles
32 miles
19 miles
35 miles
20 miles
19 miles
11 miles
17 miles
22 miles
11 miles
14 miles
926
65
153
41
1,700
910
271
426
39
518
275
Licensed Beds
627
34
153
41
729
422
212
370
18
432
211
Available Beds
59.4%
75.5%
59.7%
84.6%
51.4%
69.6%
71.3%
78.6%
71.3%
57.1%
74.0%
66.1%
$44.1
$2.9
$12.1
($2.2)
$39.5
($7.2)
$15.3
$17.5
$1.2
$23.6
$1.7
5.3%
7.5%
8.8%
5.9%
-3.6%
5.7%
-1.8%
6.8%
5.3%
5.4%
7.8%
1.1%
Net Income
as % of
Net Income
Revenue
($ millions)
$6.0
$0.7
$1.8
$1.5
$3.8
$21.8
$3.4
$2.3
$1.0
$3.3
$3.0
1.6%
1.1%
2.4%
0.9%
2.3%
0.6%
5.3%
1.6%
0.7%
3.9%
1.0%
2.0%
Uncompensated
Care as % of
Operating
Uncompensated
Expenses
Care* ($ millions)
*Uncompensated care is adjusted by a ratio of hospital costs to charges.
Source: MDH, Health Care Cost Information System.
Distance from Maple Grove is measured as the driving distance from the Maple Grove Community Center, according to MapQuest.
Statewide average
Abbott Northwestern Hospital
Buffalo Hospital
Children's Hospitals and Clinics, Minneapolis
Fairview Northland Regional Hospital
Fairview-University Medical Center
Hennepin County Medical Center
Mercy Hospital
Methodist Hospital Park Nicollet Health Services
Monticello-Big Lake Hospital
North Memorial Medical Center
Unity Hospital
Distance from
Maple Grove
Occupancy Rate
(as % of
Available Beds)
Hospitals Serving Maple Grove Area Patients: Capacity and Financial Indicators for 2003
Table 2
12
13
Table 3
Trends for Maple Grove Area Hospitals
1999
Total available beds
Inpatient admissions 176,550
Inpatient days
822,799
Occupancy rate*
69.1%
2000
2001
2002
2003
180,772
849,862
71.4%
3,260
185,029
854,346
71.8%
3,158
190,882
857,519
74.4%
3,249
190,475
858,746
72.4%
*calculated based on available beds. For 1999 and 2000, calculation is based on 2001 available beds
(data were not collected in 1999 and 2000).
Source: MDH, Health Care Cost Information System.
Projections for Hospitals Currently Serving the Maple Grove Area
Each of the three plans that were submitted to MDH for a public interest review contained an
analysis of the ability of the Maple Grove area to sustain a hospital. While the question of whether
the community can support a hospital is important, it is a different question from whether there is
a need for a new hospital in the community. The legislation that established the public interest
review process directs MDH to evaluate proposals for exceptions to the hospital moratorium based
on the question of the need for the proposed facility, not whether the community can support a
new facility.
As the starting point for MDH’s analysis of the Maple Grove area, we analyzed the need for a new
hospital from the perspective of the hospital system as a whole. Our analysis began with an
estimate of what will happen to occupancy rates at hospitals that currently serve the majority of
patients living in the Maple Grove area in the absence of a new hospital being built in Maple
Grove. These “baseline” estimates incorporate projected changes in population and demographics
in the market areas served by these hospitals. The baseline estimates also incorporate a range of
assumptions about future hospital use rates, due to the inherent uncertainty in projecting changes
in use of services due to factors like technological change.4 This set of estimates formed the starting
point for our analysis, and was the same for each of the three plans submitted to MDH for public
interest review.
The overall results from this baseline analysis are presented in Table 4. As shown in the table, the
occupancy rate for the eleven hospitals included in this analysis was 74 percent of available beds in
2003.5 The occupancy rate is projected to increase to 79.4 percent in 2009, and 85.5 percent in
2015 (assuming no increase in available beds). It is important to note that this increasing strain on
hospital capacity affects more than just residents of the Maple Grove area. Because the eleven
More detail on the methodology we used to create the baseline estimates is included in Appendix 2. This discussion
of the results of our analysis does not identify individual hospitals because the data we used to perform the analysis
were collected under MDH’s authority provided by Minnesota Statutes 62J.301, and Minnesota Statutes 62J.321 Subd.
5(e) prohibits the release of analysis that names any institution without a 21-day period for review and comment.
4
5
This figure differs from Table 3 because it uses a different data source.
Report to the Minnesota Legislature
14
hospitals included in our analysis account for about one-third of total hospital admissions in
Minnesota, the issue of rising occupancy rates is an issue that will likely have a much broader
impact.
Table 4
Projections for Hospitals Serving Maple Grove Residents
2003 Actual
2009 Projected
2015 Projected
Number of discharges
193,402
207,828
Range: 187,045 to 228,610
224,267
Range: 201,840 to 246,304
Number of inpatient days
877,448
943,712
Range: 849,341 to 1,038,084
1,016,040
Range: 914,436 to 1,115,288
79.4%
Range: 71.5% to 87.4%
85.5%
Range: 77.0% to 93.9%
69.6%
Range: 62.7% to 76.6
75.0%
Range: 67.5% to 82.3%
Occupancy rate: 2003 available beds
Occupancy rate: as % of maximum
physical capacity
74.0%
Source: MDH Health Economics Program. Data sources include Minnesota hospital discharge
database, Health Care Cost Information System (HCCIS), and population projections from Claritas,
Inc.
As part of the public interest review process, we also conducted an informal survey of hospitals that
currently serve patients living in the Maple Grove area to find out whether those hospitals have the
physical capacity to expand the number of available beds at their current locations to meet expected
growth in demand. We asked these hospitals about the maximum number of beds that they could
operate on a permanent basis without undergoing major construction.6 While there may be issues
with the quality of this self-reported data, based on the results of that informal survey, if each of the
eleven hospitals increased its number of available beds to the maximum level that would be feasible
with its current physical capacity, the projected occupancy rates for 2009 and 2015 are 69.6 percent
and 75.0 percent, respectively. One important thing to note about this analysis, however, is that
the hospitals that currently serve the largest numbers of Maple Grove area residents did not report
much ability to expand the number of available beds without a major construction project; the only
hospital that reported having the ability to make a large number of additional beds available
without a major construction project is one of the hospitals that is most distant from Maple Grove,
and currently serves a small share of the Maple Grove market.
At certain times during the year the occupancy rate for the group of eleven hospitals currently
serving most Maple Grove residents is expected to be substantially higher than the average
occupancy rate over the entire year. In 2009, the highest projected weekly occupancy rate for the
eleven hospitals as a group is 85.4 percent; in 2015, the peak weekly occupancy rate is projected to
We asked the hospitals to answer this question within the context of their current business plan – for example, if their
business plan calls for all private rooms and they would not consider converting rooms to semi-private rooms in order
to serve a larger number of patients, then they would report their maximum physical capacity based on a configuration
of all private rooms.
6
Minnesota Hospital Public Interest Review - Fairview
15
be 91.9 percent for the group of hospitals currently serving residents of the Maple Grove area.
Figure 4 provides an illustration of the variation in projected occupancy rates at different times of
the year for the group of eleven existing hospitals that serve residents of the Maple Grove area.
Figure 4
2015 Weekly Projected Occupancy Rates for Hospitals Serving Residents of the Maple
Grove Area
100%
90%
# of weeks above annual average: 29
Maximum weekly occupancy: 91.9%
85.5%, annual average
80%
70%
60%
50%
40%
30%
20%
10%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
0%
Occupancy rates calculated based on available beds.
One key question that arises from this analysis is at what point should a hospital’s (or group of
hospitals’) occupancy rate be considered “too high”? Unlike some other industries, which strive to
operate at or near full capacity, hospitals are different. Because the level of demand at any given
time is somewhat unpredictable, hospitals generally attempt to operate at a level below full capacity
in order to be able to meet unexpected surges in the need for services. In addition, operating at a
level too close to full capacity can lead to costly inefficiencies, such as delays in the ability to admit
new patients or transfer patients between units.
One approach to answering the question of the “right” occupancy rate would be to define a specific
benchmark level above which the occupancy rate is considered too high. Alternatively, one could
define a specific number of hospital beds that is needed given an area’s population. Both of these
approaches have been used extensively in the past, particularly under Certificate of Need regulatory
structures. However, more recent analysis of this question has pointed out that the question of
Report to the Minnesota Legislature
16
what an appropriate occupancy rate should be requires a much more complex approach than
identifying a single number that applies to all hospitals, but instead depends on both hospital size
and the number and size of distinct units within the hospital.7 There is no agreed-upon standard
for occupancy rates or threshold for when an occupancy rate should be considered too high in
either hospital industry trade publications or peer-reviewed academic research publications.
Industry experts that we spoke to indicated that 70 to 80 percent occupancy is an appropriate
range, and that costly inefficiencies may occur at occupancy levels above 85 percent.
Analysis of Specific Proposals
After projecting what occupancy rates at hospitals serving patients from the Maple Grove area
would be in the absence of a new hospital, the next step in our analysis was to estimate the impact
of a new facility in Maple Grove on admissions, inpatient days, and occupancy rates at these
hospitals. Since each of the three proposals to build a hospital in Maple Grove is unique, this
analysis was performed separately for each proposal and the results are presented below in the
discussion of the specific proposal as it relates to each of the criteria specified in the law.
Importantly, the analysis of each proposal is specific to the service area that was defined by the
applicant as the proposed primary service area. The three proposed service areas range in size from
10 to 22 zip codes. For a variety of reasons, such as variation in existing physician affiliations and
referral patterns, we believe it is possible that the proposed Maple Grove hospital’s service area (the
geographic area from which it draws most of its patients) may vary depending on which, if any, of
the three proposals is approved by the Legislature. The “true” service area for any new hospital can
only be observed after the fact; as a result, it is likely that all of the applicants’ proposed service
areas are different from what the service area for a hospital built in Maple Grove would eventually
be. In this case, there is an especially high degree of uncertainty about the proposed hospital’s
service area due to the likelihood that as many as three large new ambulatory care centers may be
built in the community, which we would expect to have an impact on patterns of hospital referrals.
For these reasons, MDH did not attempt to independently define a service area for the proposed
Maple Grove hospital.
We used a similar approach to analyze the impact on hospitals currently serving patients from the
Maple Grove area in terms of the potential financial impact on these hospitals, including the
potential impact on their ability to provide services to nonpaying or low-income patients. These
results are also included below in the discussion of how the proposal relates to each of the
evaluation criteria in the law.
7
See, for example, Linda V. Green, “How Many Hospital Beds?” Inquiry v. 39, Winter 2002/2003.
Minnesota Hospital Public Interest Review - Fairview
17
5. Review of Fairview’s Proposal for an
Exception to the Hospital Moratorium
This section describes Fairview’s proposal for an exception to the hospital moratorium in order to
build a new hospital in Maple Grove. Following a brief description of the proposed project, we
evaluate Fairview’s proposal in light of each of the five factors specified in the statute that
established the public interest review process.
Background and Project Description
Fairview Health Services is a non-profit integrated health network that operates 7 hospitals and 31
primary care clinics. In partnership with the University of Minnesota Physicians, Fairview has 60
specialty care locations. Fairview also intends to partner with the University of Minnesota
Physicians to provide care at its proposed Maple Grove campus. Fairview provides care through a
number of other partnerships, such as Fairview Physician Associates, the Institute of Athletic
Medicine, and Behavioral Healthcare Providers. Through the clinics that it owns and through
partnerships with other health care providers, Fairview currently provides primary care and specialty
services in and around the Maple Grove community.
Fairview’s seven hospitals are located in Burnsville, Edina, Hibbing, Minneapolis, Princeton, Red
Wing and Wyoming, Minnesota. Together, these facilities accounted for approximately 13 percent
of total acute care hospital admissions statewide and generated $87 million in net income in 2003.
Figure 5 shows the locations of Fairview’s current hospitals.
Report to the Minnesota Legislature
18
Figure 5
Hospitals Owned by Fairview
St. Cloud
Fairview Northland
Fairview University - Mes
Fairview
Lakes
Hibbing
Duluth
35
94
Maple Grove
35E
494
35W
35E
394
Fairview-University
694
St. Paul
35E
Fairview Southdale
Fairview
Ridges
35W
Fairview Hospitals
0
4
8
16
24
Miles
32
–
Fairview Red
Wi
Fairview proposes the construction of a health care campus in Maple Grove that would include
both an ambulatory care center and an acute care hospital. Phase 1 of the project, scheduled to be
completed as early as 2006, would include a 126,000 square foot ambulatory care center providing
primary and specialty care, mental health and chemical dependency services, imaging, cardiology,
and laboratory services, a women’s center, a cancer center, and other services. As noted earlier,
Minnesota law does not restrict the ability of a health care provider to construct outpatient
facilities, and the ambulatory care center portion of Fairview’s proposed Maple Grove campus is
outside of the scope of the public interest review process established under Minnesota Statutes
144.552.
Minnesota Hospital Public Interest Review - Fairview
19
In Phase 2 of the project, Fairview proposes to construct a hospital with 72 to100 acute care beds,
as well as a level III trauma center,8 which would open no later than 2009. Future phases of the
project would expand the hospital incrementally to a total of 284 acute care inpatient beds.
Fairview’s request for an exception to the hospital moratorium would transfer 284 licensed beds to
the new Maple Grove hospital from Fairview-University Medical Center (FUMC); these bed
licenses are not currently in use at FUMC. The proposed distribution of beds by type of service is
shown in Table 5.
Table 5
Fairview's Proposed Breakdown of Inpatient Beds by Service Category
2009
(100 beds)
Medical
Surgical
Obstetrical
Pediatric
Mental Health Services
Neonatal (Level 2 Nursery)
Total
2015
(240 beds)
2020
(284 beds)
37
24
14
6
12
7
94
56
30
16
28
16
107
68
34
18
38
19
100
240
284
Source: Fairview submission to MDH dated November 9, 2004.
Fairview estimates the costs for the construction of the ambulatory care center at $47 million, with
an additional $64.8 million to $90.0 million for construction of the 72- to 100-bed hospital. For
the completion of all phases of the project including expansion of the hospital to 284 beds,
Fairview has estimated the total cost at $299 million.
The proposed location of the Fairview Maple Grove campus is a 26.7-acre site that is bounded by
the proposed Highway 610 corridor to the north and Fernbrook Avenue to the east. According to
Fairview’s submissions, construction of the proposed hospital is contingent on an East-West
connector in Maple Grove. The extension of Highway 610 is not required but would benefit the
ease of access to Fairview's proposed hospital.
Primary Service Area
Fairview expects the primary service area (PSA) of its proposed Maple Grove hospital to be the area
within an approximate 10-mile radius of the proposed site. The service area defined by Fairview
includes 10 zip codes and covers portions of Hennepin, Sherburne, Wright, and Anoka counties.
Communities in the proposed service area include Albertville, Anoka, Dayton, Elk River, Maple
Grove, Osseo, Plymouth, Rogers, and St. Michael.
See Appendix 3 for a description of the differences between Level I, II, III and IV emergency services as defined by
the American College of Surgeons.
8
Report to the Minnesota Legislature
20
The population in Fairview’s proposed service area is projected increase by 20.8 percent between
2003 and 2009, and by an additional 20.5 percent between 2009 and 2015; these growth rates are
substantially higher than the projected statewide population growth of 4.7 percent between 2003
and 2009 and 5.0 percent from 2009 to 2015.9 In addition to rapid population growth in the
proposed service area, the most rapid projected population growth is among the population aged 55
years or older; while this is also true for the state as a whole, growth among this population is
expected to be much faster in the service area defined by Fairview compared to statewide growth
(41.8 percent from 2003 to 2009 compared to 13.5 percent statewide). This combination of rapid
population growth and an aging population is expected to increase the demand for hospital services
by residents of this area. Based on MDH’s analysis, the number of hospitalizations of residents of
this area is expected to increase by 26.3 percent from 2003 to 2009, and by an additional 26.5
percent from 2009 to 2015.
Factor 1: Whether the new hospital or hospital beds are needed to provide timely
access to care or access to new or improved services
In order to assess the impact of all three proposals for a Maple Grove hospital that MDH received
in terms of whether the hospital is needed to provide timely access to care, we analyzed the impact
of each of the proposals on future occupancy rates at existing hospitals that serve residents of the
Maple Grove area. We also looked at how the proposals addressed specific service areas such as
mental health, obstetrics, and emergency services that were identified by community members as
areas of need for additional services.
Capacity of existing facilities
Residents of the Maple Grove primary service area were hospitalized in many hospitals throughout
the state during 2003, but eleven metro area hospitals provided the bulk of inpatient acute care to
residents during that year. These facilities are also dependent, to varying degrees, upon this area for
an ongoing proportion of their inpatient volume. The eleven hospitals are North Memorial, Mercy,
Methodist, Abbott Northwestern, Buffalo, Monticello-Big Lake, Hennepin County, FairviewUniversity, Minneapolis Children’s, Unity, and Fairview Northland.
As noted earlier, MDH analysis projects that in the absence of any new hospital capacity being
built, occupancy rates at the group of 11 hospitals that currently serve most residents of Maple
Grove and the surrounding communities are projected to increase from 74.0 percent in 2003 to
79.4 percent and 85.5 percent in 2009 and 2015, respectively. In 2009, six of the eleven hospitals
are projected to have occupancy rates above 75 percent; by 2015, ten of the eleven will have
occupancy rates above 75 percent and four will exceed 90 percent. As discussed earlier, the
usefulness of annual occupancy rates as a measure of the degree to which existing capacity is
strained is limited, but it can still be useful as a rough guide.
Population projections for 2009 are from Claritas, Inc.; projections for 2015 were developed by MDH assuming the
same annual growth rate from 2009 to 2015 as projected by Claritas for 2004 to 2009.
9
Minnesota Hospital Public Interest Review - Fairview
21
If Fairview’s proposal for an exception to the hospital moratorium is approved, the addition of new
hospital capacity is expected to reduce occupancy rates at existing area hospitals below the rates that
are projected if no new hospital is built. Because Fairview’s proposal involves expanding the size of
the hospital over time, the effect of the new hospital on existing hospitals would also increase over
time. In our analysis of Fairview’s proposal, we assumed that the Maple Grove hospital would have
90 beds in 2009 and 240 beds in 2015.10 Under this scenario, the projected occupancy rate for the
group of eleven existing area hospitals would be 77.5 percent in 2009 (compared to 79.4 percent if
no hospital were built), and 80.3 percent in 2015 (compared to 85.5 percent if no hospital were
built). In other words, the impact of Fairview’s proposed Maple Grove hospital would be to reduce
occupancy rates at existing hospitals serving the Maple Grove area by 1.9 percentage points in 2009
and 5.2 percentage points in 2015.
Some hospitals that currently serve Maple Grove area residents would experience a larger impact
than others as a result of the Fairview proposal. Hospitals that currently serve the largest share of
patients from the service area that Fairview anticipates for the Maple Grove hospital would likely
experience the largest impact. At the eleven existing hospitals, the impact of Fairview’s proposal on
occupancy rates ranges from a decline of 0.3 percentage points to 8.2 percentage points in 2009
compared to the projection with no new hospital; for 2015, the decline in occupancy rates ranges
from 0.9 percentage points to 21.8 percentage points compared to no new hospital being built.
Although it is not possible to state definitively what occupancy level is “right” for a hospital or the
hospital system as a whole, it seems reasonable to conclude that hospitals in the Maple Grove area
will experience increasing strains on capacity in the absence of any new capacity being added to
serve patients from this area over the next ten years. As noted earlier, if no new capacity is added,
MDH projections show that in 2015 ten of the eleven existing area hospitals will have occupancy
rates above 75 percent, and four would have occupancy rates above 90 percent. Under Fairview’s
proposal, we estimate that these strains on capacity would be reduced somewhat: only 8 of the
eleven hospitals would have occupancy rates above 75 percent in 2015, and only 2 would have
occupancy rates above 90 percent.
As noted earlier, it is also important to recognize the considerable diversity of size and service
capability among these eleven hospitals. For example, the tertiary care facilities operate many
specialty units, such as cardiac, cardiovascular, stroke, orthopedic, and research services that often
require specially equipped beds. Some of these beds may not be open to other patients. In another
example, the American College of Obstetrics and Gynecology recommends a target occupancy level
of 75% for maternity units given the emergent nature of the care provided. Given the current
trend toward specialty units, an overall occupancy levels may be more a reflection of the mix of
services available than generally available capacity to be filled.
10
Additional assumptions and the methodology we used for our analysis are described in more detail in Appendix 2.
Report to the Minnesota Legislature
22
Distance and Time to Existing Facilities
In the plan submitted by Fairview to MDH, Fairview describes the concern of Maple Grove
residents over timely access to health care services, a concern that was also echoed at the MDHsponsored public meeting in Maple Grove. According to Fairview, the community expressed an
“interest to meet and improve upon the metro standard for ambulance travel times to hospital care
of 15 minutes.” Currently, most residents of Maple Grove and nearby communities obtain
inpatient care from hospitals that are at a distance of between 11 and 32 miles, which translates
into travel time under normal weather and road conditions of 20 to 30 minutes. The nearest level
I trauma centers are North Memorial Health Care and Hennepin County Medical Center, about
11 miles and 19 miles from Maple Grove, respectively. However, travel times vary significantly
depending on the time of day, weather conditions and traffic congestion.
In addition, a recurring theme expressed by numerous Maple Grove residents at the MDH public
hearing January 11, 2005 was a concern about family and children’s safety, given the driving
distance to the nearest Level I trauma center at North Memorial, traffic congestion, and the
number of traffic lights encountered en route. North Memorial Medical Center and Hennepin
County Medical Center are the only American College of Surgeons verified Level I Trauma Centers
in Hennepin County. Driving times can vary substantially depending upon the route taken, time
of day, weather and traffic conditions. Helicopter transport with advanced life support is available
in the area for the most critical medical emergencies.
Based on information provided by Fairview in its application, drive times from the proposed
Fairview Maple Grove hospital campus to existing acute care hospitals that serve residents of the
Maple Grove area range from 20 to 45 minutes or more depending on the time of day and weather
conditions. Only two hospitals (Mercy and North Memorial) are within a 20-minute drive from
the proposed Fairview site in normal, non-congested, non-rush hour traffic. Within the Hennepin
County portion of the service area, North Ambulance provides EMS transportation, both ground
and air. In some cases, EMS transport times may be extended if an emergency department is
diverting ambulances to other facilities. EMS diversions may occur if emergency department beds
or other beds are full at a hospital, a staff shortage exists, or on-call specialist physicians are
unavailable.
Although a reduction in travel time will mean quicker access to hospital care for Maple Grove area
residents, it is unclear to what degree having more timely access will improve health outcomes. At
the public meeting in Maple Grove, we heard anecdotal stories of people who delay seeking
emergency treatment due to the distance from a hospital emergency room, or people who
inappropriately use urgent care clinics when they really need to go to a hospital emergency room.
As part of the public interest review process, MDH conducted a review of published research on
the impact that distance and/or travel time to a hospital have on health outcomes. There is not a
large amount of published research on this topic, but some researchers have found evidence that
increased distance to the nearest hospital is associated with higher mortality from emergent
Minnesota Hospital Public Interest Review - Fairview
23
conditions such as heart attacks and unintentional injuries.11 However, other factors not related to
distance or time, such as short Emergency Medical Service (EMS) response times and sophisticated
on-scene medical interventions can also improve survival and, in some time-sensitive conditions
such as heart attack, stroke, and certain traumas, sustain longer advanced life support transport
distances and times. So, while distance to a hospital ER may be a factor for consideration, a wellfunctioning and timely EMS system also plays a critical role in ensuring patient outcomes.
Access to Specific Services: Mental Health, Obstetrics, and Emergency Services
At the public meeting on January 11, 2005, residents of the Maple Grove area expressed concerns
about access to three specific types of hospital services: mental health, obstetrics, and emergency
services. Several community residents stated that there was a shortage of inpatient mental health
services; for obstetrics and emergency/trauma services, convenience and a desire for more timely
access were the main concerns.
With regard to inpatient mental health services, MDH analysis shows that about 93 percent of all
hospitalizations of residents of the Maple Grove area (as defined by Fairview) occur at one of the
eleven hospitals that we identified as serving a significant number of Maple Grove area residents.
For psychiatry and chemical dependency services, however, when residents of the Maple Grove area
are hospitalized they are much more likely to be hospitalized at a facility other than one of the
eleven hospitals that serve most of this market (18.9 percent and 10.6 percent of the time for
psychiatric and chemical dependency services, respectively). In other words, residents of the Maple
Grove area who need to be hospitalized for psychiatric care or chemical dependency are much more
likely to leave their local hospital market to receive care than residents who are hospitalized for
other reasons. This is consistent with a statewide pattern that individuals who are hospitalized for
psychiatric or chemical dependency services are less likely to be hospitalized in their local area than
they would be for other services.12 Fairview’s proposal for a Maple Grove hospital includes 12
behavioral health services beds initially, growing to as many as 38 beds in 2020 if the hospital is
expanded to the full proposed 284 beds.
An additional area of concern for Maple Grove area residents was timely access to obstetric services.
Because the population in this area is younger on average than the state as a whole, obstetric
admissions represent a higher share of total inpatient admissions from the Maple Grove area than
for the state as a whole. In 2003, about 22 percent of hospital admissions from the service area
defined by Fairview were for obstetric services, compared to 16 percent statewide. The Maple
Grove hospital proposed by Fairview would include 14 obstetric beds initially, growing to as many
as 34 beds in 2020 if the hospital is expanded to the full proposed 284 beds.
Thomas C. Buchmueller, Mireille Jacobson, and Cheryl Wold, “How Far to the Hospital? The Effect of Hospital
Closures on Access to Care,” National Bureau of Economic Research Working Paper No. 10700, August 2004.
11
Minnesota Department of Health, Health Economics Program, “Minnesota Mental Health and Chemical
Dependency Treatment Utilization Trends: 1998 – 2002,” Issue Brief 2004-07, November 2004.
12
Report to the Minnesota Legislature
24
Finally, Maple Grove area residents have expressed concerns about timely access to emergency and
trauma services. As noted above, there is not much clear evidence about how closer access to an
emergency room will affect health outcomes. It should be noted, however, that the emergency
services proposed by Fairview would meet the American College of Surgeons criteria for designation
as a level III trauma center, which means that the hospital would provide “prompt assessment,
resuscitation, emergency surgery, and stabilization” and that more complicated cases would be
transferred to other hospitals.
In summary, Fairview’s proposed Maple Grove hospital does include the mental health, obstetric,
and emergency services mentioned as being of most concern to community residents. The
proposed hospital would not offer new or improved services that are not already available at other
hospitals nearby.
Factor 2: The financial impact of the new hospital or hospital beds on existing acutecare hospitals that have emergency departments in the region
For a number of reasons, there is a high degree of uncertainty involved in predicting the financial
impact of any of the three proposals to build a Maple Grove hospital on existing hospitals that
currently serve residents of the Maple Grove area. The potential for three large new ambulatory
care centers in Maple Grove providing a wide range of specialty care services would almost certainly
have a significant impact on which hospitals residents of the Maple Grove area are referred to by
their physicians for inpatient services. The combination of this change (which may occur even if
the Legislature does not approve any exceptions to the hospital moratorium) with the addition of a
new hospital makes it especially difficult to predict the impact on existing hospitals.
In addition, although MDH has access to hospital discharge data that allowed us to analyze and
project hospital discharges, inpatient days, and occupancy rates, we do not have any data that
allows us to translate the impact of a new hospital on the volume of services provided into an
estimate of the specific financial impact of a new hospital on existing hospitals in the region. If a
hospital loses patients that it would have served in the absence of the new hospital being built, it
not only loses potential revenue but also avoids costs (such as staffing and supplies) that it would
have otherwise incurred. Because we do not have information available to us that allows us to
calculate the net financial impact of the proposed hospital on other existing hospitals in the region,
in this section we focus instead on changes in the volume of business and occupancy rates.
Applicant’s Analysis
Fairview’s analysis of the financial impact of its proposed Maple Grove hospital on existing hospitals
that currently serve the Maple Grove area finds little adverse impact. This analysis is based on the
assumption that population growth will increase the demand for hospital services at all facilities in
the area, resulting in the ability to “easily backfill” capacity.
Minnesota Hospital Public Interest Review - Fairview
25
MDH Analysis
There are two ways of looking at the financial impact of a new hospital on existing hospitals: first,
in relation to a hospital’s current business; and second, in relation to what would have occurred in
the absence of the new hospital. The impact of Fairview’s proposal on existing hospitals in the
Maple Grove area varies by hospital, with hospitals that currently serve a large share of the Maple
Grove market likely to experience the biggest impact. This is illustrated by the projections
described above that compare projected occupancy rates at each of the eleven hospitals to the
occupancy rates that would be projected in the absence of a new hospital. However, when
comparing the impact of Fairview’s proposal in relation to the current patient volume and
occupancy rates at existing hospitals, the results of our analysis are largely consistent with Fairview’s
assertion that growth in overall demand for services will offset the impact of increased competition
for patients from the Maple Grove area. Assuming that Fairview’s proposal for a Maple Grove
hospital were approved, ten of the eleven existing hospitals that currently serve patients from the
Maple Grove area are projected to experience increases in the total number of inpatient days in
2009 and 2015 compared to 2003; in many cases, however, the increase in volume is much slower
than it would have been in the absence of a new hospital. One hospital would experience a
projected 1.5 percent decline in inpatient days in 2015 compared to 2003.
Additional Factors for Consideration
There are three additional factors that may be important in analyzing the potential financial impact
of Fairview’s proposal on existing hospitals that serve patients from the Maple Grove area:
First, the impact is likely to vary by type of service. Because profitability varies by type of
service, this is an important consideration. We did not attempt to specifically estimate the
impact on existing hospitals by type of service.
Second, there is a high degree of uncertainty about how physician referral patterns may
change as a result of the new hospital and the multiple new ambulatory care centers that are
currently being proposed. Even if the proposed Fairview hospital does not directly provide
highly specialized services (such as open heart surgery), its association with the Fairview
hospital system could have an impact on referrals to non-system affiliated hospitals. Our
analysis does not incorporate this possible change, but instead uses the information that we
have on current travel patterns of patients from the Maple Grove area. However, it is
important to note that the change is a possibility that could have an impact.
The third area relates to patient preference. A common theme heard in our public meeting
in Maple Grove was the desire of the community for nearby hospital services. An MDH
literature review showed that patients prefer hospitals closer to home when alternative
choices are available. Consumer preferences for nearby hospital services may act as a
mitigating factor to any potential shift of highly specialized services away from North
Memorial toward system-affiliated hospitals that are more distant from Maple Grove than
North Memorial.
Report to the Minnesota Legislature
26
In summary, for the 11 primary hospitals providing care to residents in the applicants proposed
service area, our analysis finds that the inpatient volumes, even with the construction of a new
facility as described in the Fairview application, would continue to increase above 2003 levels (with
one exception). However, the increase would generally be at levels that are below what otherwise
would have occurred without the construction of a new facility in Maple Grove, with some facilities
experiencing larger effects than others Other factors that are important to consider include the
fact that the effect of a new hospital will likely vary by service type; that there is a possibility that
physician referral patterns may be altered as a result of the new hospital construction; and the
impact that patient preference will have on those referral patterns.
Factor 3: How the new hospital or hospital beds will affect the ability of existing
hospitals in the region to maintain existing staff
Fairview estimates that its proposed Maple Grove hospital will require between 420 and 550 fulltime equivalent staff positions with an average annual labor expense of $25 to $32 million.
Fairview anticipates that many of its 341 current employees who live in or near Maple Grove will
choose to work at the new hospital.
While MDH is unable to predict the specific workforce shifts that may occur from surrounding
facilities, there are several factors that may directly or indirectly influence potential job-seeking
behavior by persons considering employment in any new facility in Maple Grove. First, for
employees living in Maple Grove or the Northwest corridor, the opportunity to work closer to
home to reduce commuting time and costs may prove to be an important consideration. Second,
for employees working in unionized hospitals with significant earned seniority, potential loss of that
seniority may mitigate their willingness to move to a different employer, although the exact effects
are unknown.
In recent years, shortages of particular types of medical staff (especially nurses) have resulted in
competition among hospitals to attract and retain staff, both in Minnesota and nationally. One
reason why there is concern about the impact of a new hospital on the ability of existing hospitals
in the region to maintain their staff is that if competition among hospitals for staff intensifies, this
would drive up wages at all area hospitals (and therefore contribute to rising health care costs).
According to the Minnesota Department of Employment and Economic Development, the job
vacancy rate for nurses in the seven-county Twin Cities metropolitan area was 3 percent in the
fourth quarter of 2004. Although the job vacancy rate for nurses in the Twin Cities has declined
over the past four years (in the fourth quarter of 2000, the job vacancy rate for nurses was 8
percent), it is still higher than the overall job vacancy rate in the Twin Cities (2 percent in the
fourth quarter of 2004).13 Although the nursing shortage in the Twin Cities appears to have eased
somewhat compared to 2000, many factors will likely contribute to continuing shortages into the
Minnesota Department of Employment and Economic Development, Job Vacancy Surveys for fourth quarter 2000
and fourth quarter 2004.
13
Minnesota Hospital Public Interest Review - Fairview
27
future. These factors include rising demand for health care services due to population growth, the
aging of the population, and technological advance; in addition, Minnesota’s nursing workforce is
older than average – as these workers begin to retire, shortages will occur if they are not replaced by
newly trained professionals.14
In comparison to the existing 11 hospitals serving residents of the Maple Grove area, the size of
Fairview’s proposed facility is not large. In 2003, the existing hospitals as a group had 3,249
available beds; Fairview’s proposal would add 72 to 100 beds initially, with the possibility of up to
284 beds. In other words, while the Fairview’s proposal would add to the local demand for hospital
staff, it is unlikely to have a large impact on the labor market because the proposal is small relative
to the existing market; the other factors contributing to labor shortages that are described above
may well have a larger impact on staffing shortages than the new hospital capacity proposed by
Fairview.
Factor 4: The extent to which the new hospital or hospital beds will provide services to
nonpaying or low-income patients relative to the level of services provided to these
groups by existing hospitals in the region
In 2003, Fairview hospitals provided $10.7 million in uncompensated care, which represented
0.9% of their operating expenses (compared to a statewide average of 1.6 percent). In addition to
hospital uncompensated care, Fairview’s proposal describes a number of community-based
initiatives that provide services to uninsured or underserved populations. In its proposal, Fairview
states that it will provide charity care and community benefits to residents of the Maple Grove area
that are similar to those provided in other communities served by Fairview.
In addition to concerns about the level of UC that will likely be provided by the new hospital, a
related concern is whether the new hospital will change the payer mix of existing hospitals in the
region that provide relatively large amounts of UC. For example, if a large number of privately
insured patients are attracted to the new hospital, this could adversely affect the ability of existing
facilities that provide large amounts of UC to continue to serve nonpaying patients. Compared
with the state as a whole, the service area proposed by Fairview for the Maple Grove hospital has a
higher share of residents with private group insurance and a lower share of residents with public
coverage, as shown in Table 6. The uninsurance rate for Fairview’s proposed Maple Grove service
area is not statistically different from the state average (although it is directionally lower than the
statewide average, the difference is within the survey’s margin of error). In spite of what may be a
somewhat lower rate of uninsurance in the community, based on comments from people who
attended the January 11, 2005 public meeting, there may be significant pockets of unmet need in
the area.
Minnesota Department of Health, Health Economics Program, “Labor Availability and Health Care Costs: Report
to the Minnesota Legislature,” October 2002.
14
Report to the Minnesota Legislature
28
Table 6
Sources of Health Insurance Coverage, 2001
Fairview's proposed
Maple Grove
service area*
Private
Group
Individual
Public
Uninsured
Minnesota
87.8%
74.6%
84.4%
69.6%
3.4%
4.9%
9.4%
20.1%
2.9%
5.4%
*As defined by Fairview, includes 10 zip codes
Source: MDH Health Economics Program analysis of 2001 Minnesota Health Access Survey
Numbers in bold indicate a statistically significant difference (95% level) from statewide rate.
In order to analyze the potential impact of the proposed Fairview Maple Grove hospital on the
payer mix of other existing hospitals, we used data from the 2001 Minnesota Health Access
Survey15 to estimate sources of health insurance coverage in Fairview’s proposed Maple Grove
service area. We combined these estimates with information on hospital discharges and travel
patterns to estimate 1) the insurance coverage distribution for populations served by hospitals that
currently provide significant amounts of UC to patients living in this area, and 2) how this
distribution would change if Fairview’s proposed Maple Grove hospital were built. The distribution
of coverage in the area served by an existing hospital could change, for example, if the proposed
Maple Grove hospital were to draw patients from zip codes with higher than average rates of private
insurance coverage. According to our analysis, the payer mix of existing hospitals that provide large
amounts of UC would not be changed significantly by Fairview’s proposed Maple Grove hospital.
For example, we estimate that the share of the population in North Memorial’s service area that is
enrolled in public programs would increase by less than one percentage point by 2015, and the
proportion enrolled in private insurance would decrease by about 1.5 percentage points; the
proportion who are uninsured is estimated to rise by about 0.5 percentage points. Our findings for
other hospitals providing high levels of uncompensated care were similar.
Factor 5: The views of affected parties
As described above, the process that we used to solicit the views of affected parties included a letter
to all hospital administrators in Minnesota, a notice in the State Register, and a public meeting held
in Maple Grove. The views of citizens of the Maple Grove area, as expressed at the public meeting
on January 11, 2005, pertain mainly to the need for a hospital and for specific services and are
reflected in the discussion of Fairview’s proposal with regard to the first four statutory review
criteria. In addition, we received several written comments in support of Fairview’s proposal; copies
of these are included in Appendix 1.
Although this survey was updated in 2004, we used 2001 data because it has a much larger sample size and produces
better estimates of health insurance coverage for small geographic areas.
15
Minnesota Hospital Public Interest Review - Fairview
29
North Memorial Health Care (NMHC) is the only entity that has expressed concerns about
Fairview’s proposal to build a hospital in Maple Grove. Depending on which geographic area is
chosen for analysis, NMHC has either the highest or second-highest market share of any hospital
serving the Maple Grove area. According to NMHC, about 30 percent of its admissions are from
this area, and so there is significant potential for NMHC to be affected by Fairview’s proposal to
build a hospital built in Maple Grove. NMHC has expressed several specific concerns about the
Fairview proposal:
NMHC believes that “current occupancy rates are appropriate and that there is no current
need to increase hospital bed capacity.” (NMHC’s proposal for a Maple Grove hospital
would transfer currently staffed beds from NMHC’s Robbinsdale campus.)
NMHC states that approval of Fairview’s proposal could result in “destructive competition
that could so financially damage a hospital that, in the end, it would result in a profound
anticompetitive effect that would leave health care consumers and purchasers with fewer
options.”
NMHC argues that approval of Fairview’s proposal would create “an anti-competitive
hospital environment that could make it virtually impossible for any independent provider
not aligned with a large system to successfully compete in this market.” Further, NMHC
argues that Fairview’s proposal would result in an undesirable increase in hospital market
concentration in the Twin Cities area.
NMHC states that the service area chosen by Fairview was “chosen in a calculated effort to
diminish the apparent impact on North Memorial” and that the actual impact of the
proposal on NMHC would be large.
NMHC states that it will not experience admissions growth at its Robbinsdale facility that
will help to offset the impact of the proposed Fairview Maple Grove hospital. According to
NMHC, “North Memorial is located in an urban area that is not predicted to grow, except
in the Maple Grove area and beyond….Each of [the] population areas around the current
North Memorial Robbinsdale urban location is projected to decline in population, unlike
the Maple Grove area, which is predicted to grow 9% over the next five years.” Population
projections from the Metropolitan Council indicate that most of the communities
surrounding NMHC are in fact expected to grow, although at a slower rate than many more
suburban communities; between 2000 and 2010, Brooklyn Park is expected to grow by 10.6
percent, Columbia Heights by 8.0 percent, and Robbinsdale by 6.2 percent.
NMHC expresses concerns that a system-affiliated hospital built in Maple Grove, such as
that proposed by Fairview, would act as a “feeder” of more complex cases to other hospitals
in the system.
NMHC argues that independent, non-system hospitals have administrative and other
advantages over larger systems.
Report to the Minnesota Legislature
30
NMHC is also concerned about the potential impact of Fairview’s proposed Maple Grove
hospital on NMHC’s ability to retain its existing staff, since a large percentage of NMHC
staff live in the Maple Grove area.
Finally, NMHC argues that Fairview’s proposed Maple Grove hospital would
disproportionately attract privately insured patients away from NMHC in Robbinsdale,
resulting in a higher percentage of NMHC patients being low-income or uninsured, and
less resources (profits from privately insured patients) to subsidize their care.
Fairview Health Services has responded to these stated concerns as follows:
With regard to the value of health systems, Fairview states:
That it believes the creation of health systems “could create greater value to the
communities and patients they serve”
That the organizational design and consolidation of clinical and organizational
talent allow health systems to provide high-quality care at lower cost
That both Fairview Ridges and Fairview Southdale hospitals are among the least
expensive providers based on expenses per adjusted admission in the metro area and
that Fairview-University Medical Center’s higher expenses are due to the clinically
complex and challenging patient population.
With regard to NMHC’s assertion that Fairview’s proposal for a Maple Grove hospital
would have a serious and negative impact on NMHC’s ability to provide care, continue its
charitable care program and maintain selected services such as its level I trauma service,
Fairview contends that NMHC’s concerns are “overstated” and that “recent Twin Cities
experience does not bear out North Memorial’s speculation.” Fairview argues that the new
Woodwinds Health Campus (2000) did not result in declines in inpatient discharges at the
nearest hospitals and that those hospitals have actually continued to grow, even though their
market shares may have changed.
With regard to NMHC’s concern that a Fairview hospital may result in decreased
competition, Fairview argues that:
“There is healthy competition in the Twin Cities and the Herfindahl Index
demonstrates that.”
With regard to the local Maple Grove area, because of NMHC’s dominance in that
service area, granting NMHC the license to acute care beds “would limit choice,
not increase it.”
“A Fairview hospital would introduce a new competitor to that part of the metro
region.”
With regard to NMHC’s contention that there is no current need to increase hospital bed
capacity, Fairview argues that “a move of acute care beds from the Robbinsdale campus to a
Maple Grove campus will not solve the bed demand resulting from anticipated population
growth and aging” of the Maple Grove area. Fairview states that the inpatient demand from
Minnesota Hospital Public Interest Review - Fairview
31
the current service area of NMHC will continue to grow and that given this growth,
NMHC will need to return to the Legislature in the future to request a moratorium
exception for new licensed beds on one or both campuses.
With regard to NMHC’s criticism of the criteria used by Fairview to define the Maple
Grove service area, Fairview argues that differences in the service area would be expected
given historic differences in patient populations served.
Fairview states that because its proposed hospital would provide only level III emergency
services, the nearby level I trauma program at NMHC will continue to be required and
used.
Finally, Fairview states that NMHC’s association of the Public Interest Review Process with
the “Ambulance Law” (144E.11) is not applicable because in the case of the Moratorium
Law, the “Legislature has elected to retain control of the application for exception process
because of the complexity and economic consequences associated with a decision.”
Report to the Minnesota Legislature
32
6. Discussion and Recommendations
The 2004 Legislature established a new step in the process for seeking an exception to Minnesota’s
hospital moratorium, putting in place a Public Interest review by the Minnesota Department of
Health. The proposals to build new inpatient capacity in the Maple Grove area present the first
opportunity to apply the new law.
The public interest review law requires a hospital seeking to increase its number of licensed beds or
an organization seeking to obtain a hospital license to submit a plan to the MDH. The
commissioner is required to review the plan and issue a finding on whether the plan is in the public
interest. As mentioned earlier in this report, there are a number of statutory factors the MDH
must consider during its review, in addition to other factors the MDH believes are relevant to the
review.
The public interest review statute does not define “public interest” nor does it define for which
“public” the analysis should be conducted. There could be a variety of different “publics”: the
citizens of the proposed service area, the citizens of communities not in the proposed service area
that could be affected by the proposal, or the citizens of Minnesota. In addition, the statute does
not provide direction to MDH on the analysis of situations where more than one hospital is
intending to seek an exception to the hospital moratorium for the same or similar geographic area.
We received three separate requests for reviews at approximately the same time in November 2004:
Fairview Health Services, North Memorial Health Care, and the Maple Grove Tri-Care Partnership.
The MDH reviewed all three proposals simultaneously under the public interest review law relative
to the statutory factors in Minn. Stat. 144.552, and is issuing separate findings on each plan. The
finding in this report is specific to the Fairview proposal.
The previous section of the report examined the proposal of Fairview in light of the five specific
factors MDH must consider as part of the public interest review process. This final section of the
report highlights several issues that the Legislature may wish to consider in its deliberations on
proposals brought before it for new inpatient capacity in the Maple Grove area. These issues are
outlined below.
Ability to Support versus Need for a Hospital
During the review process for the Maple Grove hospital proposals, MDH has heard from the
community, as well as from those who are interested in seeking an exception to the hospital
moratorium to build new inpatient capacity in Maple Grove, that the community can support a
new hospital. Based on analysis of population growth in the service areas defined by the three
applicants, the likely use of services in the community, and the clearly-stated community desire for
inpatient hospital capacity in the community, the Department concurs that the community could
support a hospital of the size and scope in the proposals. That is, if a new inpatient facility as
described in any of the three applications were constructed, it is unlikely that the hospital would
fail due to insufficient usage.
Minnesota Hospital Public Interest Review - Fairview
33
However, it is also important to distinguish between support and need. Specifically, while the
ability of a community to support a hospital is an important consideration, the hospital public
interest review law requires the MDH to conduct an examination of need. That is, whether a given
community can support a hospital is a separate question than whether a new hospital in a given
community is necessary to ensure the health outcomes of the residents of the community. Analysis
of need must also take into account the capacity of existing facilities that currently serve residents of
the community, the likely health care needs of the residents of the community, and any other
factors that might influence the availability of services for members of a given community.
In our projections of hospital occupancy, we estimate that, absent any new facility being
constructed, the overall occupancy rate of hospitals currently serving the Maple Grove area will
grow from 74.0% in 2003 to approximately 79.4% by 2009 and 85.5% by 2015. As mentioned
earlier in this report, these estimates of occupancy rates will also vary by facility, depending on
patient flows and the expected growth in areas served by these various hospitals. There is no single
“right” rate of occupancy. To some degree, the rate of occupancy at which facilities can and should
operate depends on the mix of services being provided at that facility. However, based on the
projected occupancy figures, it is reasonable to conclude that hospitals serving the Maple Grove
market will face increasing capacity strains within the next several years. It is also important to
note that the 11 facilities that currently serve Maple Grove also account for approximately onethird of statewide admissions, so the likely increased strain on capacity has an impact on geographic
areas beyond Maple Grove as well.
As the Legislature considers proposals to build a new inpatient facility in Maple Grove, it may wish
to consider whether the estimated growth in occupancy rates at existing facilities is sufficient to
merit the construction of a new facility. Should the legislature determine that some new inpatient
capacity is needed to address rising occupancy rates at area hospitals, then the question for
policymakers to consider is not whether new capacity should be added, but rather how and where
this new capacity should be added: by expansion of existing facilities to the extent that is feasible,
or through the construction of a new facility.
Hospital Competition and Consolidation
Another issue for consideration is the degree to which the addition of a new hospital in Maple
Grove will add to or decrease hospital competition. This is an important issue because, on balance,
peer-reviewed studies show that increases in hospital concentration lead to higher hospital prices.16
The Twin Cities hospital market already operates with a certain degree of “systemness.” That is,
several hospital systems have a relatively large share of the inpatient market in the metro area:
Allina-affiliated hospitals have approximately 30% of the market, Fairview hospitals approximately
20%, and HealthEast hospitals around 10%.
See, for example, David Dranove and Richard Lindrooth, “Hospital Consolidation and Costs: Another Look at the
Evidence,” Journal of Health Economics, Volume 22, Issue 6, November 2003.
16
Report to the Minnesota Legislature
34
There are two ways to think about the issue of hospital competition and concentration for the Twin
Cities market: metro-wide and local. A hospital constructed in Maple Grove by an existing hospital
system, such as Fairview, Allina, or Children’s, would likely increase the level of Twin Cities-wide
concentration. However, it’s important to note that all of the proposed hospitals for Maple Grove
are relatively modest in size and may be unlikely to substantially increase the level of Twin Citieswide hospital market concentration. In addition, it’s difficult in advance to know the exact impact
that a new facility in Maple Grove owned by an existing system will have on market concentration
overall, since the exact effect depends on patient flow patterns that can only be observed after the
fact.
On the other hand, a new hospital constructed in Maple Grove by an existing facility with
substantial existing market share in the immediate local area, such as North Memorial Health Care,
may increase local concentration levels. This increase in local concentration may be mitigated, at
least to some degree, by the fact that North Memorial’s proposal does not result in an increase in
overall bed capacity. The degree to which prices are increased due to increases in either local or
Twin Cities-wide concentration depends on whether prices are set at a local level for services or
whether they are set system- and Twin Cities-wide.
Bed Types and Services Provided
Another consideration for the Legislature in considering granting an exception is the mix of bed
types and services provided in any new hospital constructed in Maple Grove. For example, the
expected rapid increase in the population of childbearing age in the Maple Grove area is likely to
increase the need for obstetric services.17 In addition, because differentials exist in payment rates by
type of service, hospital beds used for different services generate different levels of profitability. For
instance, beds for cardiac care are generally profitable, while those used for behavioral health are
generally less profitable. Over time this can lead to a situation where Minnesota may have
sufficient capacity or over-capacity for profitable services, and an undersupply of beds for services
that are less profitable. Evidence suggests that Minnesota may have sufficient supply of certain
types of beds and services, but may lack adequate inpatient behavioral health capacity.18
In general, all three proposals respond to the likely need into the near future for obstetric services in
the Maple Grove area. Two of the three proposals (Fairview and North Memorial) propose to
include some level of additional inpatient behavioral health capacity in their initial inpatient
construction (12 and 4 beds, respectively), while the third (Tri-Care) does not specifically plan the
construction of new inpatient capacity, although it states its intent to “construct a viable model for
inpatient services.”
The population aged 18 to 44 is in the Maple Grove area is projected to grow between 18.3% and 33.9%,
depending on the service area defined, compared to 1.7% statewide.
17
See “The Shortage of Psychiatrists and of Inpatient Psychiatric Bed Capacity,” Minnesota Psychiatric Society Task
Force Report, September 2002 and “Minnesota Mental Health and Chemical Dependency Treatment Trends: 19982002,” Minnesota Department of Health, Health Economics Program, Issue Brief 2004-07, November 2004.
18
Minnesota Hospital Public Interest Review - Fairview
35
In considering the proposals to build new inpatient capacity in Maple Grove, the legislature may
wish to give strong consideration to whether certain services, such as behavioral health inpatient
capacity, should specifically be included as a requirement under any moratorium exception granted.
For instance, the legislature could require that a certain percentage of beds of any exception granted
be used for behavioral health services.
Potential Health Care System Costs
Although not included as a specific statutory criterion under the public interest review law, health
care cost is also a policy issue important to the consideration of inpatient hospital construction and
expansion. As a matter of policy, states have generally taken some interest in monitoring or in
some way constraining the expansion of inpatient hospital facilities. For instance, hospital CON
laws still operate, in some form, in 37 states.19 States have generally shown an interest in inpatient
hospital capacity, as it relates to health care cost, for two reasons. First, hospitals are expensive to
construct and operate, and those costs are built into the health care system and subsequently into
health insurance premiums. Second, some argue that duplication of services increases health care
costs under the argument that, in health care, supply of services is likely to induce demand for
those services. Laws, such as Minnesota’s construction moratorium law, that restrict the
construction of new inpatient facilities unless approved in advance, can have the effect of reducing
potential duplication of services.
While we did not attempt to estimate the specific impact that the addition of a new inpatient
facility in Maple Grove would have on health care costs, it is likely that the construction of any
new facility will add at least some additional cost to Minnesota’s health care system, although the
proposed construction costs of all three proposed projects are relatively modest in comparison to
overall state hospital spending. The extent to which the construction of a new hospital is
duplicative of existing services and is therefore likely to induce excess demand depends in large part
upon whether the existing facilities serving the Maple Grove area have sufficient capacity to serve
the population into the future or whether those facilities are sufficiently strained to merit additional
capacity. That is, if existing capacity is insufficient to provide services to the Maple Grove
community into the future, then policy issues related to construction cost and the potential of
induced demand may be less of a concern.
Summary and Recommendations
Reviews related to the construction of a new inpatient facility in the Maple Grove area are the first
under the new public interest review process passed by the 2004 Legislature. The law requires that
the MDH issue a finding as to whether the proposal is in the public interest.
U. S. General Accounting Office. “Specialty Hospitals: Geographic Location, Services Provided, and Financial
Performance,” October 2003.
19
Report to the Minnesota Legislature
36
As mentioned earlier in this section, the legislation does not define “public” for the purposes of
“public interest” and therefore the “public” can be defined in a variety of ways. One potential
“public” could be the persons living in the Maple Grove area. With regard to the ability of the
community to support a hospital, MDH believes that the community can support a hospital and
should one be constructed in the Maple Grove area, it is unlikely that the hospital would fail due to
lack of use. In addition, the construction of a new facility as proposed would provide more
convenient access to services for residents in the community. Therefore, we believe it would likely
be in the public interest of members of the Maple Grove community if a new hospital were to be
constructed.
In examining whether Fairview’s proposal is in the public interest for Minnesota as a whole, the
analysis is more complicated because it must also take into consideration issues such as system
capacity, potential cost impact, and the statutory factors, such as the effect of the new inpatient
construction on existing facilities, examined in section 5 of this report.
As shown earlier, we project that occupancy rates for hospitals serving the Maple Grove community
will increase over the course of the next ten years, and will be at levels that are relatively high by
2015. Based on this analysis, we conclude that hospitals serving the Maple Grove market will face
increasing capacity constraints in the next 10 years. In addition, because the hospitals that serve
Maple Grove also account for approximately one-third of the state’s overall admissions, the strain
on these facilities also has an impact on geographic areas beyond the Maple Grove area. MDH
concludes that allowing construction of new inpatient capacity of the size and scope proposed by
Fairview would relieve, at least to some degree, these expected capacity strains.
In conclusion, after examining the proposal submitted by Fairview in relation to the factors
specifically required by Minn. Stat. 144. 552 and other relevant factors, the Minnesota Department
of Health has the following findings and recommendations:
Fairview’s proposal to build a new inpatient facility in Maple Grove, Minnesota is in the
public interest; and
The legislature should consider requiring that a certain percentage of hospital beds of any
exception granted for the Maple Grove area be dedicated for behavioral health services.
Minnesota Hospital Public Interest Review - Fairview
37
Appendix 1
Copies of Comments on the Proposal
Report to the Minnesota Legislature
53
Appendix 2
Methodology
This appendix provides additional details on MDH’s analysis of the application for public interest
review. It describes the methods and data that we used to:
Project future utilization and occupancy rates at hospitals currently serving residents of the
Maple Grove area in the absence of a new hospital being built in Maple Grove;
Estimate the impact of the proposed Maple Grove hospital on existing hospitals that serve
residents of the Maple Grove area; and
Analyze the potential shift in payer mix at existing hospitals as a result of the proposed
Maple Grove hospital.
Projecting Hospital Use and Occupancy in the Absence of a New Hospital
This analysis focused on eleven hospitals that were identified as (a) holding a significant market
share of the discharges from the Maple Grove area (as defined by the applicant); (b) having a high
dependency on patients from the Maple Grove area (even if the hospital does not have a large share
of the total market, it may be very dependent on the Maple Grove area as a source of admissions),
or (c) being a major safety-net hospital provider in the region. The hospitals included in this
analysis were Abbott Northwestern Hospital, Buffalo Hospital, Children’s Hospital in Minneapolis,
Fairview Northland Regional Hospital, Fairview-University Medical Center, Hennepin County
Medical Center, Mercy Hospital, Methodist Hospital Park Nicollet Health Services, Monticello-Big
Lake Hospital, North Memorial Medical Center, and Unity Hospital.
We used Minnesota hospital inpatient discharge data from calendar year 2003, excluding discharges
of normal newborns. This data includes information on the patient’s zip code and age. First, we
calculated occupancy rates for each of the eleven hospitals and for the eleven hospitals as a group in
2003.
Next, we projected inpatient volumes and occupancy rates to 2009 and 2015. In order to take
account of population growth and demographic change that may be occurring in a particular
hospital’s service area, we looked specifically at the zip codes from which most of the hospital’s
patients originate. We chose to define this area as the geographic area (group of zip codes) from
which the top 75 percent of the hospital’s discharges of Minnesota residents originated in 2003.
For each of the eleven hospitals, we calculated hospital-specific and age-specific hospitalization rates
for the population living in the geographic area as defined above. We used projections of future
Population estimates by zip code and age were obtained from Claritas, Inc. for 2000, 2004 and 2009. We estimated
2003 population by assuming a constant average annual growth rate from 2000 to 2004. We projected forward to
2015 by applying the same average annual growth rate estimated by Claritas from 2004 to 2009.
19
Report to the Minnesota Legislature
54
population (by age group) in the same geographic area to project future hospital volumes.19 The
geographic areas that comprised the remaining 25 percent of the hospital’s discharges of Minnesota
residents were treated as a group for the purpose of projecting future use of hospital services, and
we assumed that the number of discharges of non-Minnesota residents would grow at the same rate
as discharges of residents of the state.
The major assumptions that we made in this analysis are as follows:
We assumed that hospitalization rates by age group would be the same as they were in 2003.
To take account of potential future changes in hospitalization rates, we also created
projections assuming a range of future use rates – either a 10% increase or 10% decrease in
hospitalization rates for each age group. Factors that could cause future hospitalization
rates to increase include rising levels of disease (for example, conditions associated with
obesity) or technological change; on the other hand, technological change can also be a
major driver of reductions in hospitalization rates. (Changes in overall hospital utilization
due to the projected aging of the population are accounted for already by the fact that the
analysis is done separately for each age group.)
We assumed that the average length of stay would also be unchanged compared to 2003.
Although the average length of a hospital stay declined in Minnesota from 5.1 days in 1993
to 4.3 days in 2003, the average length of stay has been stable over the past five years.
We assumed that average annual population growth for the geographic areas defined for
each hospital would be the same for 2009 to 2015 as projected by Claritas, Inc. for 2004 to
2009. To the degree that this method might overstate or understate actual population
growth during this period, our estimates of future hospital use would also be overstated or
understated.
Finally, we assumed that the group of zip codes from which each hospital receives its core
business (the geographic area accounting for 75% of discharges) would remain the same
over time.
Finally, because calculating occupancy rates over an entire year does not adequately capture
variations in occupancy rates that occur at different times of the year, we projected seasonal
occupancy rates for 2009 and 2015 by assuming that the distribution of inpatient days across the
year would be the same as it was for 2003. In order to account for hospital days that occurred in
2003 but are missing from our data set because the patient was not discharged until 2004, we used
hospital days from patients who were admitted in 2002 but not discharged until 2003 as a proxy.
Minnesota Hospital Public Interest Review - Fairview
55
Estimating the Impact of the Proposed Hospital on Existing Hospitals That
Serve Residents of the Maple Grove Area
In order to calculate the impact of the proposed hospital on existing hospitals that serve residents of
the Maple Grove area, we estimated the potential impact on discharges, inpatient days, and
occupancy rates at each of the eleven hospitals. First, based on the applicants’ submissions,20 we
calculated the total number of bed days that the new Maple Grove facility is designed to
accommodate, incorporating information from the applicants on both the size of the facility and
the expected occupancy rate. We calculated the impact on existing hospitals by assuming that the
new facility would in fact provide the volume of inpatient services consistent with the proposed size
and occupancy rate anticipated by the proposal. We also assumed that all of the patients served by
the Maple Grove Hospital would come from within the applicant’s defined service area. Our
estimate of the impact of the facility is therefore a conservative estimate, representing an upper
bound on the volume of inpatient services that would be shifted away from existing hospitals.
To estimate the impact on individual hospitals, we assumed that the hospital’s market share of the
services provided to Maple Grove area residents at hospitals other than the proposed new facility
would be the same as its current market share among the group of eleven existing hospitals.
Essentially, this assumes that people who do not receive services at the proposed Maple Grove
hospital will maintain the same travel patterns that currently exist. As noted in the main text of the
report, however, there is a high level of uncertainty about how travel patterns may change. There
are two main factors contributing to this uncertainty: first, the possibility of as many as three large
new ambulatory care centers in the community, which would likely have an impact on physician
referral patterns; and second, the possibility that a system-affiliated hospital in Maple Grove could
affect the pattern of referrals to other hospitals for services not provided directly at the proposed
Maple Grove hospital. For each hospital, we estimated the impact of the proposed Maple Grove
hospital on existing hospitals as the difference between a) projected volumes in the absence of a
new hospital and b) projected volumes incorporating the loss of volume from the addition of a new
facility in Maple Grove.
Analyzing Potential Payer Mix Shift
To estimate the potential effect of the proposed Maple Grove hospital on payer mix for existing
hospitals, we calculated the distribution of insurance coverage at the zip-code or zip-code-group
level for the core service areas of several hospitals. For this analysis, we limited the list of hospitals
to those that are either 1) most likely to be affected by the proposed Maple Grove hospital, or 2)
major providers of uncompensated care in the region. We used data from the 2001 Minnesota
Health Access Survey, which was a health insurance survey of over 27,000 Minnesota households,
For the Tri-Care proposal, we assume an 80-bed hospital for 2009 that will increase to 120 beds in 2015. Fairview
Health Services’ design anticipates also an 80-bed hospital in 2009, which it projects to expand to 240 beds in 2015.
Because NMHC has indicated that they are only seeking legislative approval for the transfer of 80 beds at this time,
this analysis assumes 80 beds in both 2009 and 2015. (NMHC has indicated that it may request another exception
from the hospital moratorium in order to expand its proposed Maple Grove hospital in the future.)
20
Report to the Minnesota Legislature
56
to estimate insurance coverage for zip codes, or for groups of zip codes where there was insufficient
data to estimate it at the zip code level. We aggregated these estimates of insurance status by zip
code to the geographic area from which the top 75 percent of a hospital’s discharges originated in
2003, as defined above in the projection of future demand for hospital services.
Next, we weighted our estimates of the sources of insurance coverage in the geographic area
according to the proportion of the hospital’s discharges from each zip code or group of zip codes..
This provided an approximation of the distribution of insurance coverage in the geographic area
from which the hospital draws most of its patients. We repeated this analysis for 2009 and 2015
for 1) the projections of inpatient volumes in the absence of a new hospital and 2) the projections
with the proposed new hospital.
Minnesota Hospital Public Interest Review - Fairview
57
Appendix 3
American College of Surgeons
Classification of Trauma Centers
American College of Surgeons Committee on Trauma Classification System
of Trauma Center Level
ACS Levels and Descriptions
Level I
Provides comprehensive trauma care, serves as a regional resource, and provides leadership in
education, research, and system planning.
A level I center is required to have immediate availability of trauma surgeons, anesthesiologists,
physician specialists, nurses, and resuscitation equipment. American College of Surgeons’
volume performance criteria further stipulate that level I centers treat 1200 admissions a year or
240 major trauma patients per year or an average of 35 major trauma patients per surgeon
Level II
Provides comprehensive trauma care either as a supplement to a level I trauma center in a large
urban area or as the lead hospital in a less population-dense area.
Level II centers must meet essentially the same criteria as level I but volume performance
standards are not required and may depend on the geographic area served. Centers are not
expected to provide leadership in teaching and research.
Level III
Provides prompt assessment, resuscitation, emergency surgery, and stabilization with transfer to
a level I or II as indicated.
Level III facilities typically serve communities that do not have immediate access to a level I or II
trauma center.
Level IV & V
Provides advanced trauma life support prior to patient transfer in remote areas in which no
higher level of care is available.
The key role of the level IV center is to resuscitate and stabilize patients and arrange for their
transfer to the closest, most appropriate trauma center level facility.
Level V trauma centers are not formally recognized by the American College of Surgeons, but
they are used by some states to further categorize hospitals providing life support prior to
transfer.
Source: MacKenzie EJ et. al. National Inventory of Hospital Trauma Centers. JAMA 2003 Mar 26;
289(12):1516. ©2003 American Medical Association
Report to the Minnesota Legislature
To obtain additional copies of this report,
please contact:
Minnesota Department of Health
Minnesota Health Information Clearinghouse
P.O. Box 64975
St. Paul, Minnesota 55164-0975
(651) 282-6314; (800) 657-3793
TDD (651) 215-8980
If you require this document in another format, such as large print, Braille or cassette
tape, call (651) 282-6314
Printed with a minimum of 10% post-consumer materials. Please recycle.